American Express 2005 Annual Report Download - page 97

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For the years ended December 31, 2005, 2004 and
2003, the dilutive effect of stock options excludes 14
million, 13 million and 65 million, respectively, from the
computation of diluted EPS because inclusion of the
options would have been anti-dilutive. The convertible
debentures issued in November 2003 will not affect the
computation of EPS unless the Company’s common
share price exceeds the base conversion price (currently
$60.49 per share as adjusted to reflect the Company’s
distribution on September 30, 2005 of 100 percent of
the shares of its wholly-owned subsidiary, Ameriprise,
to the Company’s shareholders). In that scenario, the
Company would reflect the additional common shares
in the calculation of diluted earnings per share using the
treasury stock method.
The debentures are convertible into our common shares
only in limited circumstances, including when the trad-
ing price of our common stock for a specified minimum
period is more than 125 percent of the base conversion
price (currently at or above $75.61). If the entire out-
standing amount of debentures were to be converted
when our common shares were trading at $75.61, the
maximum number of shares the Company would issue,
if it chose to settle the entire amount of its conversion
obligation above the accreted principal amount of the
debentures in shares, would be approximately 26 mil-
lion shares. The Company is required to settle up to the
accreted principal amount of the debentures in cash.
The number of shares issuable upon conversion of the
debentures will increase as the price of our common
shares at the time of conversion increases. Using the cur-
rent maximum conversion rate, in no event would the
Company be required to issue more than 52 million
shares upon conversion of the debentures.
NOTE 19 Operating Segments and
Geographic Operations
Operating Segments
American Express Company is a leading global
payments, network and travel company which is
principally engaged in businesses comprising three
operating segments: U.S. Card Services, International
Card & Global Commercial Services and Global
Network & Merchant Services.
U.S. Card Services includes the U.S. proprietary con-
sumer card business, OPEN from American Express, the
global Travelers Cheques and Prepaid Services business
and the American Express U.S. Consumer Travel
Network.
International Card & Global Commercial Services pro-
vides proprietary consumer cards and small business
cards outside the United States. International Card
& Global Commercial Services also offers global corpo-
rate products and services, including Corporate Card,
issued to individuals through a corporate account estab-
lished by their employer; Business Travel, which helps
businesses manage their travel expenses through a
variety of travel-related products and services; and
Corporate Purchasing Solutions, addressing a business
need to pay for everyday expenses such as office and
computer supplies. International Card & Global Com-
mercial Services also includes international banking
operations which provide financial products and ser-
vices to retail customers and wealthy individuals out-
side the United States and financial institutions around
the world.
Global Network & Merchant Services consists of the Mer-
chant Services businesses and Global Network Services.
Global Network Services develops and manages relation-
ships with third parties that issue American Express
branded cards. The Global Merchant Services businesses
develop and manage relationships with merchants that
accept American Express branded cards; authorize and
record transactions; pay merchants; and provide a variety
of value-added point-of-sale and back office services. In
addition, in particular emerging markets, issuance of
certain proprietary cards is managed within the Global
Network Services business. Global Network & Merchant
Services works with merchant and bank partners to
develop and market product propositions, operate
systems that enable third parties to interface with the
American Express global network and provide network
functions that include operations, service delivery, autho-
rization, clearing, settlement and brand advertising, new
product development and marketing.
Corporate & Other consists of corporate functions
and auxiliary businesses including, for 2003 and 2004,
the leasing product line of the Company’s small business
financing unit, American Express Business Finance
Corporation, which was sold in 2004.
The following table presents certain information regard-
ing these operating segments, based on management’s
evaluation and internal reporting structure, at
December 31, 2005, 2004 and 2003 and for each of the
years then ended.
Notes to Consolidated
Financial Statements
AXP / AR.2005
[95 ]